How is revenue recognized under IFRS 15?

Revenue recognition under IFRS 15 is based on the principle of satisfying performance obligations. This standard emphasizes that revenue should be recognized as the entity satisfies its obligations to transfer goods or services to customers. This could be at a point in time or over time, depending on the nature of the performance obligation.

When a performance obligation is satisfied, the entity has fulfilled its promise to deliver a good or service, which provides the customer with control over that good or service. This reflects a more accurate financial picture, as it aligns revenue recognition with the actual delivery of value to the customer, rather than merely the receipt of payment or the completion of a contract.

Other methods of revenue recognition, such as recognizing revenue at the moment cash is received or only at the end of a contract, do not represent the true substance of the transaction and may distort financial results. Similarly, recognizing revenue solely upon delivery of products does not consider the entirety of the performance obligations that might exist in a contract. Thus, the proper framework established in IFRS 15 ensures that revenue is recognized in a way that reflects the company's performance and the economic reality of transactions.